Duke Capital Share Discussion Threads

[carcosa] 12/4/2023 06:12

Just because a company has profitable operations does not mean it cannot go bankrupt.

High debt: Even if a company is profitable, it may still have a significant amount of debt which unsurprisingly tends to be a feature of Duke's business. If the company is unable to service its debt obligations, it may go out of business.

Poor cash flow management: Again, a company may have profitable operations, but if it doesn't manage its cash flow effectively, it may run out of money to pay its bills and employees . This can ultimately lead to bankruptcy.

There are other somewhat less likely issues such as if a company is facing a costly legal battle or lawsuit, it can deplete its resources and ultimately lead to bankruptcy, even if it has profitable operations.

Market conditions: Changes in the market or industry can lead to decreased demand or increased competition, which can cause a decline in profits and eventually lead to bankruptcy. i.e. a declining profitable business.

Mismanagement: Poor management decisions, such as expanding too quickly or investing in unprofitable ventures, can lead to financial difficulties and ultimately result in bankruptcy, despite having profitable operations in the past.

In a similar vein is Lynx Equity (UK). After Duke handed out another 1.5m (Total 15m) follow on to keep the lights on in March 2022 by July 2022 the company only had 0.27m in cash. Now that would be fine if they had spent most of it on aquiring something but in actual fact their investment interests went from 13m to 11.7m.

So in reality that was a loss of 1.3m + 1.5m = 2.8m which roughly concurs with an increase in their profit and loss reserve; now standing at 9.2m

However they also have 10.6m in debtors - They often appear to have a very large debtor book so its a relatively stable figure fwiw. This leads to a positive and healthy positive 11.2m in net assets (down from 16.7m the year before on a current basis. However factoring in the 15.2m owed longer term (mostly to Duke I assume) it results in a negative equity of 4m.

Now if Lynx get to a profitable state then the long term nature of Duke's loan is nothing to be overly concerned about. However, that is a big 'if'

Within the accounts they state that the company is dependent on the company's ultimate parent undertaken and that they believe finances will be available if required to maintain the going concern basis.

So overall yet another (long term) poor business Duke are involved with which again makes me question their screening process in the early days of the company.

However...whilst Lynx appears to be much worse state than even Trimate, Lynx is a subsidiary of a huge company based in the US called Lynx Equity hxxps://www.lynxequity.com/portfolio/ which in itself is a very very interesting company. With such a thriving parent company we don't know what (if any) guarantees they may have provided for Duke, or if it suits them to have an overseas subsidiary to be making a loss. It just gets more complicated and us shareholders will never be in a position to evaluate the risk of Lynx Equity (UK) being in Duke's portfolio.

But lets not get carried away. Even if Trimate was to collapse (and I am not saying it will) the overall thrust of my concern is why did Duke enter into such partners to begin with. Was Trimate seriously the best they could find at the time? As a consequence Duke is now a significant equity holder which is not what us investors signed up for. It raises concern as to the quality of the portfolio. The latter partners, from what I can tell, are worlds above in terms of quality businesses than the early ones.

I reckon current run rate is 6m up from Dukes last reported 5.6. It's one thing to invoice for that amount it's quite another to get it paid. On that front it was very pleasing to see a reduction in receivables of 10m reduce to 3m in the last accounts. Should be remembered that a further 2.2m cash is scheduled to be received before before 30 June 2023 from the Riverboat sale. So it appears Duke are doing a great job of getting paid.


The 6% collar sounded a great idea before inflation became a household word again. Without new business the most Duke's revenue can increase is significantly below the current inflation rate. Profitability could decline in having to pay increased interest of Duke's debt.

Having said all of that, the current share price for Duke seems well below that of what even the most realistic pessimist could justify and over the long term inflation/interest rates are forecast to decline anyway.

You have to start asking whether or not todays share price is offering exceptional value.



Misc:
BTG. I meant 2021 not 2011. Typo. Sorry. Imagine what would happen if you went through Duke's business with such an eye on their figures as opposed to mine!

podgyted: Yes I moved away from Stocko a few years ago. Have reduced by forum postings considerably over the last few years. Occasionally post on TLF & Twitter. Still miss the TMF days lol!

[purplepelmets] 12/4/2023 00:14

from Duke's website under the Partners tab.

"Trimite has a history of profitable operations in highly technical applications, has low debt and enjoys robust gross margins relative to the overall paint industry."

From reading the last few pages of posts this would appear to be a bald lie?

Duke mkt cap 125m and total invested in Trimite is 11.7m so less than 10% doesn't strike me as being a catastrophe even if Duke is forced to write off the 11.7m and move on.

[weaverbeever] 11/4/2023 18:02

Lots of buys today or advfn messing about? Price went down

[podgyted] 09/4/2023 16:18

FWIW

My interest was piqued so I've had a look at Trimite.

Doesn't look good. It stated that it breached Duke's debt servicing benchmarks in y/e 31/3/21 (all of Duke's loan has been reclassified as payable on demand). It further states that it expects this to be the case in y/e 31/3/22 - given that the accounts were signed-off on 31/3/22 this looks to be a certainty. The implication is that its made a further loss in the year ended 31/3/22 further worsening the net liability situation. Unless there is a big turnaround in 31/3/23 it would seem to be in very high risk of failing/ needing reorganisation.

If it does fall into liquidation not much of Duke's loan would be covered as far as I can see. Trimite has a debt factoring facility which will have a first charge on the trade debtors. That would leave fixed assets of £1.5m. They may be better off if they can sell the business, that I can't comment on.

The overdue accounts are a worry but that may well be just because they haven't been processed by Companies House yet - looks like the company always files on the last possible day.

[podgyted] 09/4/2023 14:04

FWIW

According to Stocko:-

Date of incorporation Feb 2012
Public since July 2012

I tend to view DUKE as venture capital - just on the basis of the transactions they get involved in - reminds me of 3i way back in the day before it became public, it was a source of funds for several of my then clients.

Even in mainstream banking there is a phrase - "If you've never had a bad debt you're not doing it right" (Or something like that).

At some point in time DUKE will have a bad debt(s), but that's OK if most of their investments are successful.

Carcosa has been on this board quite some time and I appreciate his input be it positive or negative. Just as I used to appreciate his input on Stocko (seems to have left there).

Not invested here at the moment but I visit every so often.

[btgman] 05/4/2023 23:19

Point of note Duke Royalty didn't exist until 2014.
AIMHO
GLA
BTG

[carcosa] 05/4/2023 08:01

BTG,

I have spoken to the company and have always received a professional replies. Some things I have got right and some things I have got wrong.

That is not to say I don't question their rationale or do my 'DYOR'.

I have been invested since 2011 so am quite happy with returns to date.

I had previously addressed your concern regarding company's results timescales in my second to last paragraph in my prior post.

At a Duke level the business is relatively easy to understand but investors should also question the board, question assumptions, question risks. That is in some part the responsibility of investors.

Should an investee company go bankrupt then retail investors should be prepared. i.e. not be entirely surprised (and recognise that Duke themselves have discussed this very point), consider the effect on Duke - whilst a 'blow' it's far from a death knell for Duke - although as with bank runs etc., investors will bail out questioning (rightly or wrongly) the quality of their investees.

The question is why is the share price so low? My view is that it is being seen as a Venture Capital type company; which does provide a large potential upside.

If I was so negative with Duke I would not be invested; but that does not preclude me from examining the negative side of the story instead of burying my head in the ground lol!

[btgman] 05/4/2023 07:41

Carcosa it is very transparent what you are trying to do here with your posts.

Duke released a very positive trading update recently which will have been reviewed by the Nomad and the have a duty to report any bad debts etc.

Duke loanee companies operate in a non quoted market and many of their loans/investments are supporting a buy and build strategy. Regards accounts from over a year ago is likely to be misleading as an awful lot will have changed since then.

You question their Due diligence but I would highlight how well they came through the Covid pandemic and ultimately this proved their model and gave great store to their due diligence and management. Duke are the first to get paid with their security.

Last set of accounts they had 5 out of 5 where they achieved their 6% Royalty kicker they currently trade significantly below Nav. Yield 9% and broker note points to 10% plus going forwards.

The equity stake clearly needs to be noted currently they are able to deliver a 9% dividend as they gain exit fees and equity sales the compounding effect is hugely positive.

It is quite clear you don't understand the model and don't rate the company. Speak to the company if you have concerns and sell up and move on if this isn't for you.

FWIW I have fully done my due diligence and you are a country mile out your comments spin and lack of knowledge and insight are quite frankly embarrassing.

I wont be entering in to any debate with you as your type are inherent on each bulletin board.

Duke is an incredible investment for those who get it Compounding Compounding Compounding.

AIMHO
GLA
BTG

[carcosa] 05/4/2023 07:01

"so other than this Trimite company that is not paying its dues, our other partners are all in the black, right?"

If you go through the accounts of those available in Companies House (see post #896) many of those companies are struggling and those that are not are more or less breaking even. There does not seem to be any outstandingly profitable companies in the visible portfolio.

Many detractors have indicated that the terms of a Duke loan are very onerous and ask why would these companies not go through traditional lending facilities.

Duke have addressed these concerns in the past and in practically all of their presentations. It's up to investors to determine the quality of those rebuttals.

It is perhaps surprising Duke do not have profitable any high-tech companies in their portfolio.

Given Duke claim they do a lot of due diligence, albeit via a third party, the companies do not appear to be of high quality and several depend on Duke to remain in business. Recent investments however eg New Path Fire and Security Ltd do seem to be a step up in quality. So perhaps after DUKE have made a land grab to get them started they are becoming less risk tolerant which may explain why so few deals have been made in the last year or so.

Assuming that the realisable NAVs are lower than accounting standards (which is not uncommon) and that profitable company disposals are like a venture capital company's exit via an IPO. There are certainly significant differences, but overall, it's not too far off the mark.

it would be reasonable for investors to view Duke as a venture capital company (especially given their high equity ownership to the extent they are the majority shareholder in Trimate). Perhaps that could explain why Duke trade well below NAV.

Given companies' house have results that are relatively old for the companies they are to some extent reflecting businesses exiting the COVID era so maybe things are not so bad; but many of those businesses performed poorly prior to COVID.

Fortunately investors have free access to Companies House and therefore can DYOR.

[purplepelmets] 05/4/2023 01:51

so other than this Trimite company that is not paying its dues, our other partners are all in the black, right? Very tempted to take an initial position here for the divi to diversify away from REITS

[igbertsponk] 03/4/2023 15:46

Definitely late accounts, but perhaps not.... give it a day or two to make sure.
"We aim to process most online filings within 24 hours. Paper documents sent by post might take a week or more to process - so it'll be a while before you find out if they've been accepted or rejected."

And as Companies House currently can't access their offices due to a leak or summat there may be a valid excuse for a delay in processing everything.

[lord gnome] 03/4/2023 14:53

Yes, that makes sense. Notwithstanding all of this, I still think that Duke is a good investment and a good income stock. I just wish the market shared my view.

[carcosa] 03/4/2023 14:48

LG: Got it! Eventually (I think). Thanks.

So the Confirmation statement expired, so to say, on 24 March and the results were due to be submitted between then and 31 March.

In all likelihood the results are with companies house but have yet to be published/made available to the public because Companies House tend to take time with such things.

I suppose Companies House could publish it in a day or two. Does that make sense?

[lord gnome] 03/4/2023 14:33

Carcosa - sorry to be a pedant, but it was up to date on 24 March. Results were due to be filed by 31 March and it’s now 3rd April.

[carcosa] 03/4/2023 14:28

LG,

Thanks for that. I now see it on the 'Overview' tab. However the confirmation statement says otherwise i.e. everything is up to date as of 24 March 2023.

Can't say I understand it.

btgman: Not sure I understand why you posted that old RNS. It's effectively out of date already as you can forecast future recurring revenues in excess of that RNS with additional contributions from New Path Fire and Security Ltd (which appears to be in reasonable financial health) & Instor Solutions, Inc. Or am I missing something?

[lord gnome] 03/4/2023 12:19

Carcosa - I went on to the companies house web site and the accounts for the year to 31 March 2022 are red flagged as overdue.

[carcosa] 03/4/2023 12:03

LG, The overdue accounts are not overdue. They have another 12 months or so before that happens. Unfortunately for us that's how Companies House works.

Also, unlike listed companies there are incentives to make minimal accounting profit to reduce tax etc., The complete opposite to plc's! However having negative assets is not a good thing.

You may also wish to review Trimate accounts for previous years. Last time they made reasonable returns was 2019.

Trimate and some other companies within the Duke universe are performing similarly. It does bring into question what they mean by making extensive (third party) vigorous research into these companies and what their criteria really is. Seems largely low quality to me.

[weaverbeever] 03/4/2023 11:54

Good info chaps. Thank you.

[lord gnome] 03/4/2023 10:23

I've been having a little nose into Trimate after Carcosa's posts above. Interested to note that accounts for the year ended 31 March 22 are now overdue at Companies House. I noted also a comment in the accounts to 31 March 2021 that Duke's support was pledged until 31 March 2023. I wouldn't read too much into the loss recorded in 2021. Lots of companies were suffering at that time. I'd be more interested in how Duke view their investment now and whether their support is ongoing.

[bagpuss67] 02/4/2023 07:57

LG. There are charges registered by HSBC, Shawbrook and Duke.

[tag57] 01/4/2023 21:26

Me too although not sure how much they know about paint manufacturing ;-)

[tag57] 01/4/2023 15:36

Bagpuss, looking at Tristone Healthcare it is not a generic carehome provider but specialises in special needs children and adults providing a range of services and has been pretty aggressive with acquisitions over the last couple of years. Their 2023 results will be interesting as their acqs should have settled in by then and be materially contributing to the P&L.
Duke certainly carries a higher risk than some of my other holdings (due to the longevity of its investments) such as VSL, but maybe this is a good thing as they get paid a percentage of sales - in todays inflationary times this could see some decent increases.
Anyway, I will need to pay more attention to the underlying investments going forward but think the risk reward over a longer period is quite interesting to me.

[bagpuss67] 01/4/2023 11:56

Still if they haven't provided could be quite a hit?

What about this exposure to the care home sector.. It seems to have been suffering from headwinds with a number of failures.

Also overall SME exposure going into a weak economic environment...

We have cut our holdings a while back and now not sure about the remaining investment in this